A draft report about the City’s water and wastewater rates has been provided to the City Council for their consideration at a future council meeting, and is being made available here for the public to consider.
In January 2015, the City requested proposals from qualified consultants to conduct a comprehensive independent evaluation of the fees and charges of the City’s Water and Wastewater Enterprise Fund, prepare a written report summarizing alternatives and recommendations, and publicly present the recommendations. The broad objective of the Rate Study is to adequately fund water and wastewater operations, foreseeable capital costs and debt service with revenue that is derived in an equitable and justifiable manner from new and existing customers. On March 3, 2015, a professional services contract was awarded to Raftellis Financial Consultants (“Raftellis”).
On April 8, 2015, Raftellis presented an overview of the project and solicited input from the City Council and members of the public, including the prioritization of “pricing objectives” that would drive the rate-setting process. Customers were then asked to participate in a Rate Study survey, as well.
Considering City Council and public input, Raftellis developed a financial plan and initial projections for rate increases. They returned to Salida on July 20, 2015 to present preliminary information and gather additional guidance from the City Council. After providing an overview of the rate setting process, Raftellis discussed the financial projections for the next ten years. The financial plan includes operations and maintenance expenses, debt service, capital projects and related funding alternatives, reserve requirements and targets, and a non-rate revenue. Factors influencing the plan, such as growth in the customer base, volume projections, inflation and system development fees were also reviewed and discussed. Input from the council was needed before finalizing the project, and this was an important interim step prior to finalizing rate recommendations. Interested members of the public also attended and provided input.
On August 31, 2015, Raftellis presented recommendations for rate changes to go into effect on January 1, 2016 and annually for the next four years. Although the initial analysis called for significant rate increases starting in 2016 and continuing for several years, staff worked with Raftellis to revise several assumptions in the financial plan so the recommended increases would not exceed single digit percentages. Several capital improvement projects were delayed in the plan to allow more time to accumulate the needed funds for completion. Grant funding is assumed for certain projects and new debt financing is recommended to minimize the upfront impact on rates. Funding of cash reserves was eliminated; any savings would accumulate only from unbudgeted revenue sources such as water lease revenue and other unanticipated budget surpluses.
The 10-year capital improvement plan (CIP) is a significant driver of the rates. Although several of the projects identified in the 2011 CIP were completed, many improvements remain to be completed and some new projects have surfaced. The current city council cannot commit future councils to funding the projects, many of which will be refined and changed over the coming years. However, by adopting this Rate Study, this council would be indicating support for proceeding with plans toward executing those capital projects over the next several years.
The study provides a great deal of background and financial details supporting the recommendations that are summarized in an extremely brief format below. Alternative 2 reflects a more equitable way for customers to share in the costs, although alternative 1 provides more revenue stability compared to Alternative 2.
Alternative 1: Retain the same rate structure with annual increases from 2016 to 2020 as follows:
- Water – 5%, 5%, 3%, 3%, 2%
- Sewer – 9%, 8%, 8%, 8%, 4%
Alternative 2: Re-balance the rates to equalize the revenue contribution by customer class (residential versus commercial), which would result in a reduction for the majority of residential customers. The combined rate structure changes would result in the same overall revenue as under Alternative 1 in 2016, but many residential customers will actually see a decrease in their monthly bill. Subsequent annual increases from 2017 to 2020 are as follows:
- Water – 5%, 3%, 3%, 2%
- Sewer – 8%, 8%, 8%, 4%
In addition, under alternative 2, staff suggested simplifying the tiers by rounding down from 13,333 to 13,000. This odd number was a result of the change from quarterly billing to monthly billing. The cut off between tier 1 and tier 2 was 40,000 gallons with quarterly billing. Because meter readings are truncated down to even thousands for billing purposes, the change from quarterly to monthly billing inadvertently increased the volume of free usage. Commercial customers would begin to receive 2,000 gallons free usage the same as residential customers. The base fees and total bill depends on the size of the water line and usage, which varies drastically from one commercial customer to another.
The attached table illustrates the components of a residential bill based on the current 2015 residential rates and two alternatives for 2016. It should be noted between 15% and 35% of our residential customers pay only the base rates depending on the season and outside irrigation practices. Overall, usage varies greatly depending on factors such as outside irrigation practices, the number of residents in a home, the efficiency of appliances.
The system development fee for a new 3/4″connection to the wastewater system would remain unchanged for 2016, followed by adjustments for inflation. The system development fee for a new 3/4″connection to the water system would be increased from $8,512 to $9,943 to represent the value of an equity buy-in. Fees for new connections of larger commercial lines would be adjusted commensurate with the respective demand on the system.